Information Asymmetry in Healthcare.
Information asymmetry occurs in healthcare because patients lack the medical expertise that healthcare providers possess. Patients rely on health providers to work in their best interests without conflict because of this information asymmetry (Fabes et al., 2022). Numerous authors have studied the effects of asymmetric information on the value and cost of medical care since Kenneth Arrow introduced the topic of asymmetric information in health insurance (Major, 2019).
There is a plethora of intricate relationships between individuals who receive, provide, and finance health care in the United States. Everyone is impacted by health care, whether they are well, occasionally ill, or suffering from a serious illness. Childbirth, cosmetic surgery, help managing a chronic disease, and hospice care at the end of life are all included in the field of medicine (Moses et al., 2013). Although the American health care system offers some of the most cutting-edge options available in the world, it is not the most effective. Inequalities in health care costs, availability, and quality also exist among the population, mainly due to information asymmetry (Care et al., 2013).
Information asymmetries exist in two forms. When important information is dispersed across entities that are close to each other, there is horizontal information asymmetry. Even if some of the entities might have access to more information than others, none of them possesses all the information. When one type of entity has information while another does not, and when an aggregated collection of information-poor entities does not, there is vertical information asymmetry (Clarkson et al., 2007). Asymmetrical information between two parties might result in ineffective exchanges and even health consequences. Concerns regarding information asymmetry are crucial when one party is unaware of the caliber of another party or when that party is worried about the behavioral propensity of the other party (Courtney et al., 2016).
Consumers have limited control over healthcare service choices, leading to inefficiency in the United States due to information asymmetry. This unequal distribution of information among stakeholders is a major issue (Cruz & Kini, 2007). The interactions between patients and other healthcare professionals, as well as those between patients and doctors, are governed by professional ethics, which includes both individual and organizational standards of conduct. Among them are moral standards, or bioethics, which nonmaleficence, autonomy, and fairness. In their capacity as professionals, doctors are in charge of all patient medical care (Trihastuti et al., 2020). Patients who are also consumers are unable to fully comprehend the efficacy of medical interventions because they are more concerned with finding a cure for their illness or a way to achieve pain relief. Therefore, it is particularly challenging for consumers to understand and assess the quality of healthcare services (Cruz & Kini, 2007).
Patients with low medical and health literacy may find it difficult to comprehend and communicate their health needs to healthcare professionals, which may lead to higher healthcare costs and subpar health outcomes. However, due to the internet, technological improvements have provided people with a platform for obtaining health-related information that is crucial for managing medical issues (Osei-frimpong et al., 2016). For many, it has become standard practice to access medical information from websites, medical publications, doctors, health plans, family, and friends. Often, patients question doctors about treatment plans, forcing them to respond in a considerate manner (Cruz & Kini, 2007).
Many economists believe that information asymmetry is a primary cause of market failure. As information overload, continues to worsen, information asymmetry becomes more severe (Wolfe et al., 2021). The COVID-19 epidemic and tightening budgets have heightened the need for cost-effective healthcare worldwide. The evidence implies that practitioners have a low level of cost awareness. According to a systematic review by, only 33% of physicians reported that pharmaceutical companies searched databases for appropriate treatments, and medical device manufacturers struggled to handle requests as demand for their products increased exponentially, highlighting the importance of effective information and knowledge management within healthcare organizations.
Information asymmetry is also a social scenario in which some members of the system have access to information while others do not. The evidence suggests that the health care system has radical information asymmetry. In terms of the development of medical research, the availability of highly qualified physicians and nurses and access to the most recent medications have made the American health care system among the best in the world. However, it is by no means the most fruitful. For instance, the United States was ranked first by the WHO for health spending per person but only 37th for overall health system performance (Care et al., 2013). It is clear that a doctor does not work in a vacuum and does not independently make judgments; instead, they compete with other doctors inside the facility for better roles, reputation, and ultimately for greater pay and cost reimbursement (Major, 2019). Currently, without full patient access, medical information is commonly maintained by individual clinicians or private data collectors. To completely describe a patient’s medical history, patients are unable to fully explore alternatives, contribute to and fix inaccuracies in their own data, or share their information with new practitioners. By ensuring that accurate health information is made available to appropriate individuals at the appropriate time, patient-centered information exchange should provide patients with more control and better results (Engelhardt, 2017).
Less documented is the impact that information asymmetry has on healthcare delivery once patients enter the system. Information asymmetry helps cause “lemon-like” outcomes in the following three ways: doctors and other caregivers overwhelm patients with information and deliver unnecessary treatments; doctors and other caregivers do not engage patients sufficiently and fail to provide necessary care; and uniformed patients demand unnecessary treatments (D. Johnson, 2015).
Fraud in the US Healthcare Industry
Ai et al., (2018) define fraud as “…an intentional deception or misrepresentation made by a person with the knowledge that the deception could result in some unauthorized benefit to himself or to some other person.”
In particular, in the United States, fraud occurs frequently and has an impact on a variety of businesses and organizations. One specific form of fraud that has become a major issue for many citizens is healthcare fraud. The American government and its private sector organizations have battled healthcare fraud for decades, and the war continues. People often cheat for a variety of reasons, one being pressure. This could be internal or external pressure. Family problems, financial or the drive to advance professionally might put someone under internal pressure. External factors may include a faltering economy (Dean et al., 2013). Because healthcare fraud can be caused by a variety of parties, including the patient, the health care professional, and any intermediates, fraud identification is difficult, especially in claims involving medical services (Alzubi, 2021).
Healthcare fraud includes actions taken by a diverse group of people. It encompasses fraud committed by and against medical staff, medical facilities, health insurers, MCOs, producers of prescription medications and other medical supplies, and even patients (Krause, 2015). Health insurance fraud is the deliberate deception of a health insurance company that causes unauthorized payment of healthcare benefits to a person or organization. Billing for services that were not given, upcoding of services, upcoding of products, duplicate claims, and unnecessary services are the major categories used to describe claims of health insurance fraud (Rawte, 2015).
Fraud in the healthcare insurance market is a pressing concern, as fraudulent healthcare activities are costly (Alzubi, 2021). The ordering of treatments or diagnostic tests that are not required is one of the many scams that are carried out on unwary patients (Hannigan, 2006). Aside from actual health concerns, testing and billing are the two areas where there is the greatest danger, notably fraud risk (Dean et al., 2013). Upcoding is one of the most common fraudulent practices in healthcare coding and billing. Upcoding is the practice of invoicing for higher-priced services than those that are actually rendered. This occurs when medical professionals or claimants enter codes that denote either incomplete or unreceived treatment (R. Bauder et al., 2016). Utilizing patient ignorance to create supplier-induced demand and technology imperatives may indicate that the principle of patient autonomy has been violated (Trihastuti et al., 2020). It is never simple to acknowledge healthcare fraud because of its immediate, detrimental effects on human lives. To cease denying losses, however, is the first step toward lowering them. How can a company apply the best solution and lessen losses if it is unaware of the size or type of those losses? (Gee et al. 2010). Since the advent of electronic medical records, emergency physicians have been shown to adjust their billing codes upward. Although fraudulent billing has always occurred, the era of electronic medical records has made it more blatant. Doctors’ handwritten notes were considerably less likely to contain descriptions of actions that the doctor had not taken. Some people do not seem to be able to resist the desire to employ a few clicks (Hoffer, 2023).
Approximately one-third of all healthcare costs in the US are attributable to fraud, waste, and abuse. Fraud can take many different forms, including being perpetrated by dishonest service providers, organized crimes, compliciting patients, and falsely stating eligibility for health insurance coverage. Due to its patient demographics and less rigorous payer supervision than commercial insurers, Medicaid, a state-run healthcare program funded by the federal government, is particularly vulnerable (Thornton et al., 2015). Because the Medicaid system is operated separately and has no coordination between the states, it is particularly vulnerable to fraud and abuse. Because the insurer, beneficiary, and provider have asymmetrical information, insurance fraud and abuse are typically difficult to detect (Travaille et al., 2011). Given that states spend more than a fourth of their annual budget on the Medicaid program, which competes with financing for other crucial services, fraud control enforcement is crucial for the sustainability of states' medical insurance programs (Flasher & Lamboy-Ruiz, 2017).
Individuals' and communities' rights are violated by corruption. Health systems, people, and health outcomes are all significantly impacted by corruption in regard to health. In addition to worsening antibiotic resistance and undermining all of our attempts to manage infectious and noncommunicable diseases, it is estimated that corruption kills at least 140000 children per year. A pandemic that is neglected is corruption (García, 2019). Health-related corruption can range from low-level local corruption to high-level national or even international corruption. It manifests in a variety of ways, including extortion, theft, embezzlement, nepotism, and improper influence (García, 2019). Legislation alone cannot stop Medicare fraud. Medicare fraud has been acknowledged as a concern since the Clinton administration, and partnerships across government organizations have been formed as a preventative measure. Medicare fraud has been a recurring offense, and laws and procedures alone have not been sufficient to stop it. Medicare fraud can be reduced but will likely not be completely eradicated with additional investments in governmental collaborations and improved detection tools. To ''keep a lid on'' the issue, continued attention is necessary (Hill et al., 2014).
Healthcare fraud continues to pose a serious threat to the American economy and public despite increasing financing and prosecution efforts on the part of the government. Even though healthcare fraud cannot be completely eradicated, particular measures can be used to control these sophisticated fraudulent operations (Stowell et al., 2018). Drugs that are being sold as counterfeits are those that have been made fraudulently or intentionally or that have had their source, manufacturer, or identity incorrectly identified. Both branded medications and their less expensive generic analogs are subject to counterfeiting. Common counterfeiting targets include expensive high-demand medications such as chemotherapeutic agents, antibiotics, vaccinations, erectile dysfunction medications, weight loss aids, hormones, analgesics, steroids, antihistamines, antivirals, and antianxiety medications (Williams & McKnight, 2014).
In the United States and throughout the world, the sale of fake pharmaceuticals is on the rise. Since most complaints of fake pharmaceuticals are anecdotal, it is challenging to determine the actual scope of the issue. Additionally, some people may never suspect or recognize that they are taking a product that may be fake or have altered chemicals. The classes of pharmaceuticals that are most frequently found to be fake are antibiotics and antiparasitics (Fantasia & Vooys, 2018). The prevalence of market-place counterfeit drugs has increased during the last ten years. In regard to the identification, legitimacy, and/or effectiveness of the product, counterfeit pharmaceutical products can be defined as the manufacture and distribution of dishonestly labeled drugs. The widespread use of fake drugs has had life-threatening effects on populations, including an increased risk of chronic illness, inadequate treatment results, severe drug responses, and fatality (Bolla et al., 2020).
A study by Taleb & Madadha, (2013) confirmed that drug fraud is a significant public health issue that affects governments, pharmaceutical firms, and the general population globally. It also highlights the need for new statistical databases and national studies on the prevalence of drug counterfeiting to assess and make it easier to monitor the scope of the issue.
Impacts of Information Asymmetry and Fraud
The fraudulent use of health insurance results in annual costs of hundreds of billions of dollars. In particular, the US healthcare sector accounted for approximately one-sixth of the US economy in 2017 (or $3.5 trillion; 18% of GDP). Therefore, it is critical to reduce fraud, waste, and abuse to increase the effectiveness of the healthcare system (Ai et al., 2018). high degree of knowledge asymmetry is one of the main causes of greater costs and lower quality (Care et al., 2013). Worldwide, fraud costs the economy more than $4.5 trillion annually (Wolfe et al., 2021). As long as one does not become overtly blatant or arrogant, healthcare providers can cheat because it is simple to do so and generally risk-free. It may be said that lying is a side job. High pay has always been an important factor in choosing to pursue a career in medicine, but today's demand is greater than ever (Skeen, 2003).
Healthcare fraud jeopardizes patient safety, lowers the standard of service, and wastes limited resources (Lorenz, 2013). Untrue knowledge about medicine is one of the greatest threats to world health. By escalating already existing societal injustices, stigmas, gender discrepancies, and generational chasms, misinformation can make societies less cohesive (Shajahan & Beaumont, 2022). Patient harm can result from taking advantage of patients' ignorance or convincing them to use additional health services during a consultation or prescription. This can be accomplished utilizing the technological imperative, in which doctors push patients to submit to a variety of laboratory tests or offer to employ cutting-edge technology that may not be essential so that they can quickly determine the type of medical care that is needed. Additionally, because of their collaboration with pharmaceutical firms, doctors can also recommend more expensive medications to their patients. Patients may incur increased costs to buy products as a result (Trihastuti et al., 2020).
Healthcare fraud is a major issue that costs the American government billions of dollars annually. Fraud, waste, and abuse account for approximately one-third of all healthcare costs in the US. The US healthcare system loses between $600 and $850 billion yearly to fraud, waste, and abuse, with $125 to $175 billion of this coming from fraudulent behavior (Travaille et al., 2011). More than US$7 trillion is thought to be spent globally on healthcare services, and at least 10–25% of that amount—hundreds of billions of dollars annually—is lost directly to corruption. The amount of corruption wasted by these billions is greater than what the WHO estimates will be required each year to close the gap and provide universal health care globally by 2030 (García, 2019).Due to the significant financial repercussions, fraud, especially upcoding, is a major concern. To decrease the number of fraudulent instances and associated cost consequences, fraud detection is essential (Bauder & Khoshgoftaar, 2017).
The most straightforward form of harm to identify is probably financial harm to patients, partly because it reflects economic cost to the government. The cost-sharing nature of the healthcare reimbursement system means that patients are frequently financially impacted by fraud (Krause, 2015). Fraudulent acts can also affect patients physically, albeit financial harm may be the easiest kind of harm to spot. When unneeded medical operations are carried out just to be reimbursed by the federal health care program, individuals are at risk of physical harm (Krause, 2015). Patients may suffer less obvious harm from healthcare fraud in addition to financial and bodily loss. Information, primarily patient information, is one of the main commodities in the healthcare system. At its foundation, information is the record of our individual health histories; it will be used to make judgments about future medical treatments as well as for a variety of other things, such as insurance underwriting and job applications (Krause, 2015).
The health of a patient may suffer from using counterfeit drugs. Adverse side effects, treatment failure, resistance, toxicity, and even mortality can occur as a result of the use of subpar medications. Pharmaceutical firms, healthcare workers, pharmacists, and patients must all be informed about fake drugs and the laws that are being implemented to stop them (Williams & McKnight, 2014).
Drug counterfeiting endangers the public's health, wastes consumer money, and lessens incentives for innovation and research. Better state licensing oversight of the medicine vendors would be beneficial prevent patients from losing faith in the value of pharmaceuticals and failing to adhere to their treatments, it is crucial to find a solution to counterfeit drug problems. Consumer purchases of counterfeit pharmaceuticals have significantly increased as a result of the growth of the internet and the challenges in regulating drug sellers via the internet (Blackstone et al., 2014).
Information Asymmetry between Managed Care Organizations and Providers: Implications for Healthcare Fraud in the USA
There are complex and diverse relationships between healthcare fraud and information asymmetry among healthcare providers in the U.S. Information asymmetry occurs when one side of a transaction or connection has more information than the other, and it can lead to opportunities for exploitation or unethical behavior (Capelleveen et al., 2016; Perez, 2017).
MCOs frequently rely on healthcare organizations to submit complete and correct claims for payment. Nevertheless, if there is substantial information asymmetry and providers know more about the precise services provided, the coding systems, or the medical necessity of the procedures, it may present opportunities for fraudulent billing. Providers may take advantage of this knowledge imbalance by upcoding, unbundling, or purposefully misrepresenting services (Capelleveen et al., 2016; Ekin et al., 2018; Thornton et al., 2015).
Due to information asymmetry, it may be difficult for MCOs to properly monitor and identify provider fraud. By filing false claims or participating in actions that are not in the patients' best interests, providers may take advantage of the absence of scrutiny. MCOs may have trouble spotting patterns of dishonest behavior or determining the medical necessity of the services rendered without access to complete and accurate information regarding the services rendered (Care et al., 2013; Ekin et al., 2018; Thornton et al., 2015).
Information asymmetry can also be caused by MCOs not having access to complete patient data. Providers may have critical patient-specific data, such as past diagnoses, treatments, or prescriptions, that are not disclosed to MCOs. Due to the potential incomplete knowledge of the medical history and current treatments of MCOs, this information gap may result in fraudulent behaviors, including double billing, needless surgeries, or prescription fraud (Capelleveen et al., 2016; Care et al., 2013; Goel, 2020).
Addressing information asymmetry between MCOs and providers is crucial in combating healthcare fraud in the USA. Efforts to improve transparency, enhance communication channels, and promote data sharing can help reduce the information gap. Implementing robust fraud detection systems, conducting audits and investigations, and promoting provider education and compliance programs are additional strategies for mitigating the risk of fraud.
How can the offices of inspectors generally help prevent healthcare fraud in the wake of information asymmetry?
In light of information asymmetry, regulators such as the Federal and State Offices of the Inspector General (OIG) are essential for avoiding healthcare fraud. The U.S. Department of Health and Human Services (HHS), which functions as an independent oversight body, is in charge of maintaining the integrity of all federal healthcare programs, including Medicare and Medicaid (Anthony, 2017). The HHS – OIG works in collaboration with sister agencies such as the Federal Bureau of Investigations (FBI), Department of Justice (DOJ), Medicaid Fraud Control Units, Medicaid Inspector General Offices, and Drug Enforcement Administration (DEA).
To find instances of fraud, waste, and abuse within the healthcare system, the OIG primarily conducts audits and investigations. Through these initiatives, the OIG reveals fraudulent schemes, investigates billing procedures, and pinpoints fraud-prone locations. The OIG can help resolve information asymmetry by obtaining crucial data and exposing fraudulent acts by using its jurisdiction to access information and investigate suspicious actions (Kalb, 2015; Lorenz, 2013; Stowell et al., 2018; Travaille et al., 2011). To identify patterns of fraud, the OIG also employs advanced data analytics strategies such as predictive modeling, link analysis, improbable billing hours, and time dependent billing. The OIG can find outliers, anomalies, interrelated providers, and potential fraud schemes by examining claims data and other pertinent information they receive from the public, law enforcement and MCOs. The OIG can help prioritize investigations and reduce information asymmetry by concentrating on high-risk providers and practices using these data-driven methodologies, which also enhances fraud prevention efforts (Ai et al., 2018; R. A. Bauder & Khoshgoftaar, 2017; Capelleveen et al., 2016; Drabiak & Wolfson, 2020; Skeen, 2003; Stowell et al., 2018).
To encourage adherence to federal healthcare rules and regulations, the OIG also offers advice and instruction to healthcare professionals, organizations, and beneficiaries. The OIG offers guidelines for preventing fraud, identifies prevalent fraud schemes, and assists stakeholders in better understanding their responsibilities through publications, fraud briefs, press releases, public and provider notices, and training programs. OIG helps to reduce information asymmetry and promote transparency in the healthcare system by distributing knowledge and encouraging a culture of compliance (Dean et al., 2013; Drabiak & Wolfson, 2020; Hill et al., 2014; Kalb, 2015; Stowell et al., 2018). State regulators such as the Illinois Department of Healthcare and Family Services release providers notices from time to time to keep providers abreast of change policies as well as fee-for-service payment schedules, as does the federal Center for Medicare and Medicaid Services (C.M.S.). These are the ways in which regulators try to reduce information asymmetry. Notably, the public health emergency (PHE) declared in March 2020 raises concerns about how difficult it might be for providers to keep up with changing policies and notices issued by regulators. The uncertainty surrounding public health emergencies has led to constant changes in policies making it difficult for healthcare providers to catch up.
To improve fraud prevention efforts, the various Medicaid OIGs work with a variety of stakeholders, including law enforcement agencies, state Medicaid Fraud Control Units (MFCUs), and commercial organizations. This cooperation makes it easier to share information, conduct joint investigations, and plan enforcement measures. These organizations can overcome information asymmetries, combine resources, and create strategies to prevent healthcare fraud more successfully by cooperating (Carroll, 2016; Kalb, 2015; Stowell et al., 2018).
To strengthen program integrity and prevent healthcare fraud, the OIG makes policy recommendations. These suggestions might be made in the form of new laws, revised regulations, or better program management. The OIG helps to resolve information asymmetry and boost fraud prevention efforts at both the systemic and organizational levels by lobbying for regulatory reforms and exchanging best practices (Dobrzykowski, 2019; Drabiak & Wolfson, 2020; Kalb, 2015; Stowell et al., 2018).
Various Medicaid and Medicare OIG offices also work with other state agencies when they establish from investigations that other agencies are needed to address the original allegation. For example, if a Medicaid OIG office receives an allegation from a patient concerning quality of care concerns, the Medicaid OIG office might refer it to the Department of Public Health to also investigate and address the quality-of-care concerns expressed by the patient in his allegation. For criminal allegations, the Medicaid OIG can also choose to refer to the Federal Bureau of Investigations (FBI).